Resource Library

Final Rule Streamlining Section 202 and Section 811 Projects

HUD published a final rule on June 20 intended to streamline requirements for Section 202 and Section 811 developments. Changes to 24 CFR part 891 were proposed on March 28, 2012 to update certain regulations governing all Section 202 and Section 811 developments to conform to changes in law, policy, and practices (see Memo, 4/6/12).

The final rule contains most of the proposed changes; however, the final regulation differs from the proposed by:

Removing the proposed definitions of ‘substantial rehabilitation’ and ‘repairs, renovations, and improvements.’ This in turn removes a proposed $6,500 per unit minimum for ‘substantial rehabilitation’ and $6,500 per unit maximum for ‘repairs, renovations, and improvements,’ either of which would be required to yield a 55-year useful life for the property. Instead, the final rule keeps the original definition of ‘rehabilitation,’ but modifies it by reducing the required useful life as a result of rehabilitation from 55 years to 40 years in order to be consistent with the term of the Section 202 or Section 811 capital advance.

Allowing Section 202 projects to have two-bedroom units if a portion of the units are financed by other sources and the square footage that exceeds the one-bedroom size limit is treated as ‘excess amenities.’

Some of the key proposed rule changes that remain in the final version include:

Requiring smoke detectors and alarms in every bedroom or primary sleeping area.

Removing the previous provision that prohibited healthcare facilities at mixed-finance Section 202 developments. However, healthcare facilities may not be financed, maintained, or operated with Section 202 funds, and residents must not be required to use or pay a fee for healthcare facilities. The previous prohibition against medical facilities was intended to prevent institutionalizing elderly people. To prevent isolating people with disabilities, Section 811 developments still will not be allowed to have healthcare facilities.

Extending the duration of the availability of fund reservations for capital advances from 18 months to 24 months, with the option of extending this period to 36 months.

Revising the definition of ‘private nonprofit organization’ for mixed-finance projects in order to more effectively use Low Income Housing Tax Credits by including for-profit limited partnerships with a sole general partner that is a for-profit corporation or limited liability company wholly owned and controlled by one or more nonprofit organizations.